The UK public sector spent £3.4bn on IT services in 2001 and the figure is expected to reach £3.8bn this year, according to analyst house Ovum Holway.

Holway says the market is growing at 2.5 times the growth rate of the rest of the UK IT services market. But a large chunk of this expenditure is being wasted.

Last year a survey by Accountancy Age’s sister magazine Computing revealed that the catalogue of over-budgeted or cancelled contracts since 1997 topped £1bn and the bill continues to escalate with recent IT fiascos.

The list includes individual learning accounts rising to £70m over budget; the Ministry of Defence suspending a defence stores management system after spending £20m on its development; the Inland Revenue in danger of having to pay £20m in extra costs for its outsourcing contract and the continuing negotiations between the Lord Chancellor’s Department and Fujitsu Services over problems on a £319m Libra automation project.

Nick Kalisperas, e-government project manager, Information Technology Telecommunications and Electronics Association (Intellect), says: ‘The public sector needs a better understanding of its IT objectives which must be understood by the supplier. Fundamental to decreasing waste is a better relationship between the two.’

Kalisperas says progress has been made with the Office of Government Commerce (OGC) which focuses on getting the best value from government purchasing. ‘The gateway review process for major IT schemes is a sanity check before any project is undertaken to ensure its validity. We need to go in with our eyes open because good will is finite. We all have a responsibility but if more projects fail, we are using up that good will and that will overshadow the successes.’

The OCG and Intellect are looking at ways to ensure future success by ‘making the procurement process easier, improving project management and contract management and getting value for money,’ says Kalisperas.

‘The important thing is we have a positive dialogue to get the right solution.’

One of the biggest problems according to Pete Foster, principal analyst at Ovum Holway, is that ‘EDS has half of all the IT services revenue which makes it very difficult for others to break in and get the sort of competition that ensures value for money.’

At the heart of the problem lies the tendering process, says Foster.

‘It is a big commercial risk as it can cost millions. The government has suggested it will pay for other companies to bid but that could cancel out the money it gains achieving competition.’

A further dilemma arises with ‘very rigid contracts based on price alone’.

‘It is an intractable problem,’ says Foster. ‘The government has to show it is getting value for money but they need less rigid service agreements which give a value to trust. Contracts need to be more flexible as by the time a project is finished it might not fit in with government policy.’

He added: ‘Disputes arise when change-management is not built into contracts. Unless there is a significant ability to change, money will be wasted through cancelled projects.’

Brian Westcott, editor IT trends at Society of IT Managers (Socitm), says projects often fail because central government ‘goes for the big bang approach’.

‘They try and do too much in one go. It might not be exciting to do things incrementally but with about 50% of projects going wrong, it is better practice.’

Local government appears to be learning these lessons. By focusing on flexibility, trust and working on an incremental approach, Fahri Zihni, chief ICT officer Wolverhampton City Council, says the council is getting the best value out of IT. ‘We have a very successful partnership with Fujistu. It is built on give and take. Each part of a project is costed and risk assessed separately with a pay-as-you-go aspect.’

Cautioning against central government striking contracts which can last up to 18 years, Zihni says: ‘Anything beyond three years is dodgy. In the changing world of IT, time is the most important part of a contract.’

Westcott said time problems could be eased by introducing ‘more selectivity’ with targets such as getting all government services online by 2005. ‘Central government and local authorities should be selective about what is of value and market it to citizens. It is no good doing it if no-one uses it.’